How Does Auto Insurance Even Work?

Woman signing a stack of forms

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We all know it is essential to have insurance on your car — in most states, you can’t even register your car without having at least basic automotive insurance — but how does auto insurance work?

Whether you’re a new driver, or an experienced one who has just never bothered to learn the ins and outs of the car insurance industry, here’s a basic breakdown of how car insurance works.

Types of Car Insurance

First, let’s look at the different types of car insurance before we get into your requirements to legally drive a car. Insurance companies classify several different types of coverage — some are required, while others are optional. The basic types of car insurance include:

  • Bodily injury liability — Covers you and pays for the medical expenses of the other driver and passengers if you’re at fault for an accident.
  • Property damage liability — Again, if you’re found to be at fault, this covers the cost of damages to the other car.
  • Medical benefits — Covers medical costs for accident-related injuries for both you and the other driver, no matter who is at fault for the accident.
  • Uninsured motorist — Covers you for medical and property damage expenses if you’re in an accident with someone who doesn’t have insurance. Underinsured motorist coverage does the same, if the person you crash into doesn’t have a policy that is sufficient to cover the cost of the accident.
  • Physical damage — Protects you if your car gets damaged, either in an accident or by other means. Collision coverage takes care of accidents, while comprehensive coverage takes care of things like cracked windshields or vandalism.
  • Tort — Gives you the right to sue the other party for damages, pain and suffering if they are determined to be at fault for the accident.

You may only need a few of these different types of insurance, or you may need all of them depending on the requirements of your state.

What Do You Need?

What type of insurance coverage do you need to drive legally? That will depend on the state where you live, but in general, you can expect to purchase bodily injury and property damage liability, as well as medical benefits.

If you’re not sure what kind of benefits you need, talk to someone at your local department of motor vehicles or your car insurance company.

You may want to include some of the optional insurance, such as uninsured motorist coverage, just to protect yourself. Some companies even offer additional benefits such as roadside assistance as part of your premium.

How Does Auto Insurance Work?

Once you open a policy with an insurance company, you start paying a premium every month or every six months. These payments keep your account in good standing and allow you to make a claim on your insurance if you’re in an accident.

If you are in an accident, your insurance will send an adjuster to your home or accident site, depending on the company and where you are located, to assess the damage and help you with filing your claim.

You may be required to pay a deductible before the insurance company will cover the rest of the damages — the amount will vary depending on your policy, but it is outlined in the paperwork before you start the policy, so you should be aware of the amount.

Short of giving everyone a self-driving car, having a good insurance policy is the best way to protect yourself on the road.

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